Shares of Canada's Big Six banks surged in the first half of 2026 after they comfortably beat analysts' earnings expectations, pushing their stock prices higher. Bank of Montreal led the rally with a 40.2 percent increase, followed by Toronto-Dominion Bank at 33.3 percent and Canadian Imperial Bank of Commerce at 30.3 percent. National Bank of Canada, Royal Bank of Canada, and Bank of Nova Scotia posted gains of 28.9 percent, 25.5 percent, and 21.7 percent, respectively.
Fitch Upgrades Outlook After Surprising Resilience
Fitch Ratings Inc. had initially set a "deteriorating" outlook for the Canadian banking sector heading into 2026, citing declining economic growth and trade tensions. However, the agency upgraded its outlook to neutral last month after the Big Six posted higher-than-expected profits. "When we put out a sector outlook, it's more on the business environment, not the credit worthiness of the banks themselves," said Maria-Gabriella Khoury, a senior director at Fitch. "We had them deteriorating, thinking the economy was going to slow at a faster pace, but that didn't really materialize. We were also surprised when we saw the (bank) results."
Household Resilience Defies Expectations
Canadian households have shown remarkable resilience, surprising analysts like Shalabh Garg of Veritas Investment Research Corp. He had expected a spike in impaired loan losses but that did not occur. "The higher-income households are saving more than they were pre-pandemic, and the lower-income households are saving less than pre-pandemic, or technically taking on more debt," Garg said. "As such, a good chunk of the banks' customers are managing the existing economic situation well." He added that he no longer expects credit to be a major issue for the banks in the next year, as the Big Six primarily cater to prime borrowers from high-income households.
Efficiency Gains and Capital Markets Boost Profits
Khoury noted that banks have become more efficient. "Since 2022, the banks have been doing efficiency programs and improvements, investments in digitization," she said. "There was a lot going on in the back end that helped curtail spending and improve their operating leverage." Additionally, the capital markets sector in 2025 and 2026 defied expectations, further driving earnings.
BMO's U.S. Strategy and ROE Target
Garg highlighted that BMO's earnings and share price gains reflect investor confidence in the bank's ability to improve its return on equity (ROE). At BMO's Investor Day in March, management said it expected to hit its 15 percent ROE target by the end of fiscal 2027, partly by bolstering its U.S. business, which accounts for 40 percent of overall earnings. BMO has been repositioning its U.S. operations since acquiring San Francisco-based Bank of the West in 2023. Chief executive Darryl White stated in May that the bank had completed "six quarters of optimization" and expected the U.S. business to accelerate overall profit.
